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ben9090 ben9090 is offline
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Join Date: Aug 2002
Posts: 13
Limited Company Query

I have a query on limited company tax on profits. Off the top of my head I think I saw that if profits were less then £10,000 pa tax is 0. Is this correct?

I am intending to offer my services and set up a company which I would hope will make 25k profit in year 1. With sales of 50k and 25k wage. (To make it a simple example forget overheads and other costs etc.)

What would be stopping me splitting my company into 3 seperate companies each with sales of 16.66k, profit of 8.3k and pay myself 8.3k from each company.

I know my personal income tax would be the same but what about the ltd co tax on profits? Each Co would only make 8.3k so it this not taxed?

I will see an accountant soon but just want to try and get my head round as much as possible first.

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ion_star ion_star is offline
Join Date: Oct 2002
Posts: 42

As per inland revenue site, Corporation Tax for this year is 0 for up to 10000 profit and between 10001 and 50001 there is marginal relief. Which is defined as

"Marginal relief eases the transition from the starting rate to the small companies' rate for companies with profits between £10,000 and £50,000. The fraction used in the calculation of this marginal relief will be 19/400. Marginal relief also applies to companies with profits between £300,000 and £1,500,000. The fraction used in the calculation of this marginal relief will be 11/400."

As to spilting your company into three to avoid tax it does not seem a good idea. Three companies, three sets of accounts, how to allocate sales and purchases across them and that is just for starters. Seems to me a lot of hard work. I am sure that this would not be recommend by many accountants for your situation.

Note my views only.


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Peterm Peterm is offline
Join Date: Dec 2002
Posts: 25
As for the three companies,

These would be classed as a connected company. Therefore the corporation tax rates will be divided by the number of 'connect companies'

I.E with 3, The 0% rate would change to 10,000/3 i.e 3,333. So there is no tax benifit
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KevinL KevinL is offline
Join Date: Jul 2002
Posts: 46
Everyhting that has been posted so far is absolutely correct but jsut wanted to add that if your profits are between £10k and £50k you effectively pay profit on this of 23.75% so if you could plan to either make profit over £50k, it would be beneficial, or under £10k. I.e if your profits are £25k you pay £3,562.50 tax, you pay 0% on the first £10k so you pay tax on the remaining £15k so it's effectively at 23.75%.

On a tax planning note. If you are going to make profits of £50k and take salary of £25k, it would be more beneficial for you to take remuneration as dividends as overall you and the company will be paying less tax and will therefore overall have more cash. In otherwords, for the company to be left in the same position as if it paid you a salary, you could have more in your hand if you paid yourself dividends. This is because their is employers NIC on your salary and higher tax deductions meaning you have less than with dividends which have no NIC attached.
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